February 10, 2009

Global Market Comments for February 10, 2009
Featured Trades: (IWM), (C), (BAC), (INTC)

1) Treasury Secretary Tim Geithner announced his bailout plan and the market gave him a big raspberry. Long on platitudes and short on specifics. The Dow plummeted 381, Bank of America (BAC), dropped 18%, and Citigroup (C) pared 16%. The 'End of the World' trade is back on again. A number of technical models had gotten traders long, and you could see the stop losses being triggered all the way down. Ouch! The market is betting these banks will run out of money before the economy has a chance to recover. One analyst said that up to 1,000 banks could go under over the next 3-5 years. Listening to the House financial committee hearings, it is clear that Geithner has become the whipping boy for Hank Paulson's sins. In the meantime, Obama wheedled a Senate majority for his stimulus package by getting the Republican Senator from Maine, Susan Collins, to switch sides. I predict that a rash of new bridges, freeways, and roadside rests is about to break out in the Pine Tree State.

BAC-1.png picture by sbronte

2) Nassim Taleb, author of The Black Swan, made a great point today. He argued that the financial crisis was caused by a complete failure of risk control. Investors focused only on large short term gains, and ignored possible, but highly improbable events that can have a huge, even cataclysmic impact on your performance. Who does the opposite of this? The Pentagon, which spends all of its time preparing for infinitesimally possible events, like nuclear war. Taleb applauds the US military's risk control as a model for all professional investors.

3) I loved the piece in the New York Times yesterday informing us that at the last market top in 2007, 95% of broker analysts had 'buy' recommendations on their stocks. Today it is still 60%. A worse lagging indicator there never was. These people are nothing more than shills for their investment banking departments. The surest way to the poor house is to listen to your broker. Remember, 'When EF Hutton speaks, others listen?' RIP.

4) If you wondered where the gold rally went, take a look at this chart of the yellow metal priced in Euros at a multi year high of €720. Safe haven buying of bars and coins is accelerating, with demand for $50 American Eagles up four times from a year ago. Flows into gold ETF's in January soared by 105 tonnes to a record 1,370 tonnes ($1.23 billion). Much of the buying has been by high net worth individuals who are stashing large bars in bank vaults.

GoldEuros.png picture by sbronte

5) Here is a nice early spring mustard seed. Intel (INTC) announced they plan to invest $7 billion in new factories in Arizona, New Mexico, and Oregon, hiring 7,000 workers. The company in the past has said that high costs, over regulation, and unreliable power supplies will prevent it from ever again building a major manufacturing facility in California. The plants will build low energy chips using the next generation 32 nanometer technology. At least this round is not going to China. Only the big cap tech companies have the cash to pull this off.